Adjusting Group Practice Compensation in a World Turning Value-Based (Part I of II)

By: Mike Segal

    Payors are beginning to take steps to transform from reimbursement based on medical services rendered, or “fee for service” medicine, to payment for attaining quality measures without regard to volume, which is often called “value based” care.  The trend is expected to continue to accelerate, significantly as a result of The Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”), which began to apply this year, and will begin to affect Medicare reimbursement in 2019.  Virtually every physician is subject to MACRA, and his or her income can be affected based upon his or her scores, or those of his or her medical group, in the MACRA value based valuations.   MACRA offers two alternatives.  A physician can be judged under the MIPS scoring system, or as an APM.  While APM status offers more potential economic reward (and MACRA is heavily weighted toward cojoling physicians to move into APM status) it also bears more risk, and many physicians and medical groups will remain in MIPS status for a time.  Either way, significant reporting of quality standards is required, everyone will be rated (MACRA is a competitive program), and results will be obtainable by patients on the internet.

  In addition, both Medicare and commercial payors are, through MACRA and other means, pushing physician groups to accept more risk, and to be responsible to have their reimbursement reduced if costs rise too much, or quality of performance falls below a certain standard.

   In my experience of more than a quarter century in helping to create and maintain medical group practices, physician groups are typically divided into multiple “care centers,” with each care center retaining income based on a revenue collected, predominantly fee for service, “eat what you kill” (or, as we often call it, “eat what you heal”) compensation system.  If there is more than one physician working in the care center, the care center physicians are free to determine their compensation in any manner they choose so long as the system complies with all laws and the central Board approves, but any such compensation structure is almost always fee for service based.  While the groups do often attempt to monitor quality of service, and to hold themselves out as quality providers, they have not previously been required to meet all the requirements of MACRA.

    Clearly the compensation formulae developed over so many years for group practices are going to need to be re-addressed.  I have read many articles on this subject.  It seems that many groups throughout the country are in the process of adjusting their compensation formulae to provide for a portion (usually between 15-25%) of compensation to be determined based on “value based” criteria.  I think that, as MACRA becomes better understood and, although perhaps grudgingly, accepted, the pressure to revise the manner of determining compensation will increase.

 There are, however, two formidable barriers to making this happen.  First, group leadership must be convinced that a change is necessary, and then agree on an appropriate revision.  Second, the group must get the necessary vote of its partners/members.  For most groups, a vote of at least 2/3 of the partners/members is necessary to revise the standard compensation formula.  As a result, amending a compensation formula where many physicians will at least perceive that they will not fare as well is a formidable challenge.

  In our next newsletter I will publish Part II of this article.  There I will provide specific ideas for adding value based concepts to compensation, and will discuss what has been done by others to  be able to convince the group’s physicians to make the necessary revisions.


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